Profit, Ownership, and Economic Efficiency in the Pension Fund Market

Abstract

This paper shows that, from the standpoint of economic efficiency, it is rational to introduce a non-profit pension fund administrator (AFP), whether state-owned or private, provided that: i) its fees cover exactly its average total costs; ii) it provides incentives to keep marginal costs on a par with those of its for-profit rivals; and iii) its corporate governance shields it from abuse by its executives and controllers —or from political use if it is state-owned— so that it does not raise its long-run fixed costs. Since the Chilean State has difficulty guaranteeing compliance with ii) and iii), a better option would appear to be introducing greater "efficient" competition into the system through private non-profit AFPs rather than a state-owned AFP.